Prospective buyers can
obtain a current list of Foreclosures and Short
Sales by clicking on the request link at the
bottom of this page.
At this point in the real estate market cycle on Hatteras Island,
it is a good time to update the trends that we are seeing with regard
to foreclosures and short sales. An awareness of the role that distressed
properties are playing in the overall market is important for several
reasons. First, buyer expectations of the availability of great
deals need to be adjusted to reflect present market conditions.
Second, a noticeable decrease in the level of distressed properties
in the current inventory is a signal that market dynamics may slowly
be shifting in favor of sellers. Third, the changing balance in
the market between distressed and non-distressed properties is a
pre-condition for selling prices to start rising once again.
The following graphic shows the 32.8 percent decline that has
occurred in the number of foreclosure filings between 2009 and 2011.
If the present pattern continues, foreclosure filings will be down
again this year.
The next chart depicts the changes that have occurred in both
the level and the mix of distressed property sales in 2011 and year
to date in 2012.
HATTERAS ISLAND DISTRESSED PROPERTY
SALES 2011 2012
In total, foreclosures and short sales represented 55.6 percent
of all sales transactions on the island in 2011 and 51.4 percent
of sales through September of this year. As you can see, distressed
property sales, while slowly declining, still represent over half
of all transactions.
Keep in mind that these statistics reflect past history and are,
therefore, somewhat like looking in the rear view mirror. What the
future holds is perhaps the more relevant understanding that we
should be seeking. Properties under contract give us some idea of
current purchasing behavior. Presently, short sales represent 48.1
percent of the houses and lots under contract, but bank-owned properties
account for only 9.0 percent of the total.
This pattern may reflect the fact that buyers have in the past
shied away from short sales because of the associated delays and
uncertainties and have favored foreclosures because of lower prices
and smoother transactions. As the number of available foreclosures
has decreased, buyers may be more willing to consider short sale
properties because of their price advantage over non-distressed
Where we really see the impact of the diminishing role of distressed
properties is in the inventory of homes and lots that are presently
for sale. Out of 400 properties that are available for purchase,
only 20 are bank-owned and 18 are short sales. This equates to just
9.5 percent of the total number of properties for sale.
By presenting these observations, we are not suggesting that
foreclosures and short sales are going to disappear any time in
the near future. What we are saying is that the number of distressed
properties relative to the total inventory of properties can be
expected to play a much smaller role in the future than they have
over the past few years.
As buyers search for homes and undeveloped lots to make their
dreams of owning a place at the beach come true, they would be well-advised
to look for properties that are priced appropriately for current
market conditions and not be too disappointed if they dont find
some of the bargain basement prices that we have seen during the
height of the buyers market.
As many as 70 percent of homeowners are estimated
to be going into foreclosure without taking any visible action to
prevent or delay this outcome. Many believe that recently enacted
federal legislation will rescue them. The unfortunate fact is that
this is probably not going to happen, especially where second homes
and investment properties are involved.
It is a common misconception that lenders are eagerly awaiting the
opportunity to take over homes in distress. Nothing could be further
from the truth. First, the lender does not want to own the real
estate. Second, foreclosing on a property is an expensive proposition
for a lender. Third, having a foreclosed property on the banks books
has regulatory implications. Finally, under current real estate
market conditions, the lender may be taking back an asset that is
declining in value.
Each state has its own foreclosure laws and procedures.
In North Carolina, the entire process from the first missed payment
to the actual foreclosure can take anywhere from several months
up to two years. It is generally agreed that a homeowner should
make every effort to avoid foreclosure. There are very serious and
long-lasting implications of foreclosure including credit impacts,
ability to qualify for a future mortgage, potential employment and
security clearance ramifications, and possible tax consequences.
At the first sign of financial trouble, homeowners are advised to
immediately contact their attorney, their accountant, and a Realtor
who is knowledgeable about working with distressed properties.
Foreclosure is the alternative of last resort for
both the homeowner and the lender. The good news is that there are
often options available to prevent or delay foreclosure for homeowners
who find themselves in a financially perilous situation. Misinformation
and lack of knowledge cause homeowners to make the wrong decisions
which, in turn, can make their situations worse. We invite you to
request a copy of our free report, Ways to Delay or Avoid Foreclosure,
by clicking on the request link at the bottom of this page.
One alternative to foreclosure, known as a short sale, is often
a viable solution for the owners of both primary residences and
vacation homes. By definition a potential short sale situation exists
when a borrower owes more on their home, including closing costs
and expenses, than the current market value of their property. You
may also have heard this set of circumstances referred to as a seller
being upside down or underwater.
A short sale occurs when negotiations result in
the lender agreeing to accept less than the full balance owed on
the property owners loan(s). While the concept of a short sale seems
simple enough, the reality is that the process has many dimensions,
and it can require a lot of patience, communication, and understanding
by all of the parties involved.
It is important to recognize that a short sale is
not a get out of my mortgage free pass for anyone who owes more
on their mortgage than their property is worth. A short sale is
a way to avoid foreclosure. The seller has to either be in foreclosure
or headed toward foreclosure. There must be a demonstrated financial
hardship associated with the borrowers inability to pay their mortgage,
and the owner must owe more on their mortgage than the propertys
fair market value. If these pre-conditions do not exist, then the
homeowner basically has an investment that did not work out as planned.
These individuals will usually have to wait for the market cycle
to recover, bring cash to closing to pay the difference between
the mortgage balance and the selling price, or, in the worst case
scenario, allow the property go into foreclosure.
An essential part of conversations that the homeowner
has with their advisors is understanding the potential consequences
of a short sale. For example, depending on a variety of factors,
the borrower may remain liable for the difference between the mortgage
balance and the proceeds of the short sale (deficiency judgment);
there may be income tax ramifications; the owners credit score may
be impacted; and, the homeowner could be asked to sign a promissory
note for the difference between the loan balance and the proceeds
of the sale.
Once it has been decided that a short sale is the
best option to pursue, the property is listed for sale with a real
estate broker, and the marketing process begins. After an offer
to purchase is received, the offer together with a rather extensive
short sale package is submitted to the lender. It is the lender,
not the seller, who ultimately decides whether or not to accept
the purchase price in the buyers contract. Because of the high volume
of distressed property related files that lenders are processing
and the associated backlogs, it can take anywhere from several weeks
to several months for the lender to make a decision. This inherent
delay is a major reason that it is so important for there to be
open communication among all of the parties in the transaction about
the short sale process and the need for patience and understanding.
The end result can be beneficial outcomes for everyone involved.
A copy of our free report, Short Sale An Alternative to Foreclosure,
may be obtained by clicking on the information request link below.
Tom has been awarded the professional designation
of Certified Distressed Property Expert (CDPE). We understand the
processes of short sales and foreclosures. Equally important, we
are empathetic to the fact that distressed homeowners are experiencing
one of the most painful financial situations that they have ever
Some buyers and investors may be hesitant to
consider properties that are identified as foreclosures or short
sales because they have concerns about benefiting from another persons
financial misfortune. The reality is that by purchasing a distressed
property, the buyer is helping the homeowner, assisting the lender,
probably obtaining the property at a favorable acquisition cost,
and, in a very real sense, making a meaningful contribution toward
resolving the current housing market dilemma by reducing the inventory
of unsold homes.